Statement by Mr. Daouda Sembene, Executive Director for Senegal, and Mr. Oumar Diakite, Advisor to Executive Director, June 26, 2017

Fourth Review Under the Policy Support Instrument and Request for an Extension of the Policy Support Instrument-Press Release; Staff Report


Fourth Review Under the Policy Support Instrument and Request for an Extension of the Policy Support Instrument-Press Release; Staff Report

Our Senegalese authorities appreciate staff’s constructive engagement and valuable policy advice. They also welcome Fund’s support for their capacity development efforts. The Policy Support Instrument (PSI) arrangement continues to play a critical role in supporting the authorities’ efforts to maintain macroeconomic stability and achieve inclusive growth. The economic policies and reforms undertaken in recent years have contributed to improving significantly the performance of the Senegalese economy, despite a difficult international environment. Macroeconomic performance and program implementation in 2016 remain satisfactory, and progress was also made on structural reforms, although some of them were implemented with delay. The authorities request a one-year extension of the PSI to consolidate these achievements, further improve the efficiency of Treasury operations, and sustain progress toward regional convergence criteria.

The PSI-supported program is well aligned with the objectives of the strategy ‘Plan Senegal Emergent” (PSE) which aims to accelerate growth, and improve the living conditions of the population. In this context, sound macroeconomic policies and strong reform efforts are being implemented with a view of transforming Senegal into a middle-income country by 2035. In recognition of the authorities’ fruitful efforts to boost growth, sustain fiscal consolidation and improve debt management, Moody’s upgraded Senegal’s rating to Ba3 with a stable outlook in April 2017. It is against this background that Senegal successfully issued last month a $1.1 billion Eurobonds on favorable terms.

Recent Economic Developments and Performance under the PSI-Supported Program

The Senegalese economy continues to benefit from the implementation of the PSE. In 2016, real GDP grew by 6.7 percent, reflecting renewed momentum in the primary and tertiary sectors and good performance in the secondary sector. Price inflation remained subdued at 0.8 percent in a context of low international oil prices and increased supply of cereals products on the market.

In the fiscal area, the authorities continued their fiscal consolidation efforts, focusing on increasing revenue and rationalizing expenditures. As a result, the fiscal deficit was reduced further. In the external sector, the current account balance improved, notably on account of lower petroleum product prices, stronger exports, and increased workers’ remittances.

The performance under the PSI-supported program remains satisfactory. All quantitative assessment criteria at end-December 2016 were met. The ceilings on treasury float and direct contracting and the floor on social expenditure were all observed. Improvements in tax collection combined with stricter controls over public consumption expenditure have helped contain the fiscal deficit within the target set by the program.

Significant progress was also made in meeting structural benchmarks. Three out of five structural benchmarks set for December 2016 and the first quarter of 2017 were met. In addition, one of the two unmet structural benchmarks related to the finalization of the decree expanding the National Public Debt Committee was subsequently implemented with delay. The authorities have successfully recovered more than 50 percent of tax claims considered recoverable in 2016. The financial audit identifying Treasury cash flows gaps was completed.

Medium Term Macroeconomic Policies and Structural Reforms

The outlook for 2017 remains favorable with growth expected to reach 6.8 percent. This strong performance is expected to be driven notably by the implementation of the PSE priority projects in agriculture, industry and services, and continued public investments in infrastructure. Inflation is forecast to remain moderate despite upward pressures on international oil prices. The external current account balance should continue to improve largely because of stronger exports and workers’ remittances. Going forward, the authorities will sustain their reform efforts, notably with a view to expanding fiscal space, strengthening public financial management, and improving governance and the business climate.

Advancing Fiscal Policy and Reforms

The authorities will follow their fiscal consolidation path in compliance with WAEMU guidance. For 2017, they will strive to meet their fiscal deficit target of 3.7 percent of GDP, including by enhancing revenue collection, while streamlining and containing current expenditures.

On the revenue side, increasing domestic revenue mobilization is a challenge that will be addressed, notably by strengthening the tax and customs administrations and expanding the tax base. To this end, the authorities will operationalize the new organizational structure of the tax administration (DGID) and continue their efforts to develop electronic return filing procedures and electronic payment for medium enterprises. They intend to launch three major applications selected in the context of the “Hackhathon” organized in Senegal with the aim of improving significantly the managerial and operational capacities of the DGID and enabling it to take full advantage of technological innovations. These applications should help to improve compliance by allowing taxpayers with no access to the internet to file and pay their taxes through mobile phones, enable the digitalization of tax returns, and improve the quality of data. The Customs administration will also continue to upgrade its IT systems and automate the clearance procedure for international trade which will contribute to improve the collection of customs revenues. Efforts will also be made to centralize the payment of customs duties and enhance the transparency of customs procedures.

Priority will also be given to strengthening fiscal policy and rationalizing tax expenditures. In this regard, the authorities intend to focus their efforts on land and mining activities, financial services and telecommunications with the view to simplifying and rationalizing taxation in these areas. The rationalization of the tax expenditures will also be pursued based on the most recent report of 2014 and the conclusions of the working group established to this effect. The authorities will implement a revised action plan to reduce tax expenditures, notably by limiting discretionary measures and promoting a comprehensive approach based on transparent published rules applicable to everyone.

On the expenditure side, the authorities will continue their efforts to streamline current expenditures as envisaged in the PSE. Steps will be taken to reduce public consumption and control the evolution of the wage bill, while safeguarding social expenditures. On the latter, a policy of reprofiling recruitments in the public service will be necessary to meet the needs and requirements of projects, reforms and actions contained in the PSE.

Our authorities are mindful of the need to improve the quality of public spending financed with domestic resources. In this regard, they have created the national directorate of budget with a view to improving the effectiveness of public spending. To accelerate the implementation of public investment projects and improve their efficiency, they also intend to subject budgetary appropriations to the production of project financial and physical execution reports by each Ministry concerned. Moreover, the decree relating to the budget nomenclature will be revised to orient spending towards gross fixed capital formation and the authorities will operationalize the integrated bank of projects, as well as the selection committee on public investments.

Enhancing Treasury Operations and Restructuring the Post Office

The authorities are committed to strengthening treasury cash management. To this end, they will continue to modernize payment systems and computerize procedures, notably by implementing a performance contract with the Treasury administration and developing the strategic development plan. The effectiveness of the second-generation Treasury Single Account will be further consolidated and completed by end-December 2017. Cash management at the Treasury will also be improved using strong measures to reduce the balances on agencies’ accounts (comptes de dépôts), and the advances that the government has made available to the national postal service and the national retirement fund for public employees (FNR) over the last few years. To this end, the end-December 2016 balances of the comptes de dépôts will be audited.

The authorities are fully committed to raise the management of public enterprises to modern standards. In this regard, the restructuring of the Post Office will remain a priority in 2017 with the assistance of the World Bank. Based on a financial and operational diagnostic, an agreement to clear cross arrears will be signed between the State and the Post Office. This should improve the financial situation of the Post Office and allow it to find a strategic partner which could inject new capital in the enterprise.

Promoting Good Governance and Private Sector Development

Actions to promote good governance and promote the private sector will also be pursued. The national strategy which is expiring in 2017 will be amended and a multiparty framework to monitor budget execution will be established, which will be comprised of representatives of the parliament, the administration, civil society, the private sector and local authorities. In addition, the authorities plan to improve their tools for measuring governance and the quality of self-assessment of governance policy. An annual report on the governance of the country will be published in this effect.

The authorities are determined to promote the development of a strong private sector, which plays a central role in the country’s PSE. They will continue their efforts to improve the business climate, notably through the adoption of best practices in public-private partnerships with the assistance of the Fund. The implementation of the follow-on business climate and competitiveness reforms program (PREAC II, 2016–18) will be further strengthened, thus securing additional progress toward fostering the country’s attractiveness. In this regard, our authorities’ efforts will focus on improving the factors of production and connectivity, the rationalization of administrative procedures related to investment and trade, and strengthening the fiscal and judicial environment for the private sector. To further improve the country’s “Doing Business” ranking, the authorities are committed notably to make use of online payment more widespread, make land register paperless, and operationalize commercial courts. The authorities have also created a one-stop window (Maison de l’Entreprise) to better coordinate their interventions in support of small and medium enterprises.

Civil Service Reforms

To achieve the modernization of the civil service combined with a service oriented and results-based administration, an emphasis will be put on changing the structure of employment in the civil service with technical profiles and new competencies. In the 2018 budget, the authorities will set recruitment ceilings by ministry and institution to better control the hiring process in the public administration. The professionalization of human resources management is part of the comprehensive reform of the public administration undertaken by the authorities which also includes the standardization and computerization of administrative procedures.


Our Senegalese authorities remain committed to the program supported by the PSI. In this regard, they will continue to implement the reforms aimed at achieving strong economic growth, preserving macroeconomic stability, and improving public financial management and the business environment.

In view of Senegal’s satisfactory progress and the authorities’ strong commitment to pursue reforms, we would appreciate Directors’ support for the completion of the fourth review under the PSI and the one-year extension of the arrangement.